Lesson 8 of 8 · All lessons in this module
- What real estate is and why it is different
- Direct ownership, indirect vehicles and REITsVideo lesson
- Real estate returns, the risk-return spectrum and leverage
- Real estate income, inflation and diversification
- Infrastructure: assets, cash flows and categories
- Greenfield, brownfield and secondary stage; forms of investmentVideo lesson
- Infrastructure risk, return and diversification
- Integrated case: LTV covenant, leverage and infrastructure profiles
Lesson 8 of 8 · 15 min
Integrated case: LTV covenant, leverage and infrastructure profiles
A real estate case chains the current loan, a revaluation and a loan-to-value covenant: find today's loan and value, test the covenant, cure a breach by repaying debt or by posting collateral, then see what the year did to the equity.
In short
- Use current figures: the loan after amortisation and the latest appraised value, never the purchase price or the original loan.
- Covenant test: current loan ÷ current value against the cap. Repayment needed = loan − cap × value.
- Extra collateral needed = loan ÷ cap − value. It equals the repayment ÷ cap, so it is always the larger number.
- Return on equity = (NOI − interest + change in value) ÷ equity. The same year can be −1.5% unlevered and −15.5% levered.
- Infrastructure funds are placed by assets and revenue: target equity returns, net of fees, are about 14%+ (high risk), 10–12% (medium) and 6–8% (low).
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